But you may be surprised to learn that not all workers who receive a retirement pension are actually retired. Some choose to continue working, part-time or full-time, while receiving their retirement benefits from the program. If you are one of those people, or if you plan to claim benefits very soon but still keep your job in some capacity, you should be aware of a handful of changes expected in 2021.
Exemption limits for the retirement earnings test are changing
Perhaps the biggest change concerns the retirement income test. The retirement income test allows the social security administration to withhold all or part of the benefits of early retirees if they earn above a predetermined income threshold. By pre-retiree, I’m talking about a retired worker receiving a monthly payment who has not yet reached full retirement age.
For example, retired workers who receive a benefit and will not reach full retirement age in 2020 are allowed to earn up to $ 18,240 for the full year ($ 1,520 per month) without being paid. no deduction is applied. If they exceed this amount, every $ 2 of earned income above this threshold results in a $ 1 withholding of benefits. For early retirees who will not reach full retirement age in 2021, this threshold rises to $ 18,960 per year, or $ 1,580 per month.
The same goes for pre-retirees who will reach full retirement age in 2021. First filers who reach full retirement age next year will be able to earn up to $ 50,520, or 4,210 $ per month, before $ 1 of benefits is withheld for every $ 3 of earnings above that income threshold. This is an increase from the threshold of $ 48,560 for a full year in 2020.
It should be noted that the retirement earnings test no longer applies once you reach full retirement age, regardless of when you start receiving your benefits. In addition, the benefits retained are not lost forever. Rather, they are repaid in the form of a higher monthly benefit after reaching full retirement age.
Social Security payroll tax deferrals expire
Social Security recipients who still choose to work could also see an increase in the payroll tax they are subject to in 2021.
As you may already know, the 12.4% payroll on labor income (wages and salaries) is responsible for the lion’s share of income received by Social Security – $ 944.5 billion in 1 $ 06 trillion in 2019. With Congress at an impasse in the second round of stimulus, President Trump signed an executive order in August allowing payroll taxes to be deferred between September 1, 2020 and December 31, 2020 for workers earning until ‘to $ 104,000. This was done to temporarily boost workers’ take-home pay as they navigate the 2019 coronavirus disease (COVID-19) -induced recession.
Although not all states or companies have opted for this four-month payroll tax deferral, 2021 may surprise some American workers who have pocketed a little more since early September. You see, since President Trump’s order is a deferral and not a payroll tax holiday, it requires deferred payroll tax to be refunded into the program. This means that American workers who agreed to this postponement in 2020 will repay what was postponed to 2021. It could certainly come as a shock to the elderly who rely on their combined salary / wages and benefits to make ends meet.
High incomes may owe more
High-income workers who receive Social Security benefits may also be required to open their portfolios a bit larger in the coming year.
The aforementioned payroll tax is applicable in 2020 on activity income between $ 0.01 and $ 137,700. Since 94% of working Americans will earn less than $ 137,700 this year, they will pay Social Security for every dollar they earn. During this time, earned income over $ 137,700 is exempt from payroll tax.
In 2021, this payroll tax income limit increases from $ 5,100 to $ 142,800. While this will have no impact on the 94% of working Americans who will not reach that cap, it will require high earners to pay up to $ 632.40 more next year (assuming they are self-employed workers).